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PPP, PPP loans, PPP discrimination

How The PPP Loan Contributes To The Wealth Gap

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Oct. 6 2020, Published 3:23 a.m. ET

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The United States government has some explaining to do. As always.

In the midst of the coronavirus pandemic, small businesses are struggling to stay afloat. From furloughing employees, accumulating debt due to the lack of income, to permanently closing, small business owners are in a terrible bind. To help combat these challenges, the government made the Paycheck Protection Program(PPP) available. However, not everyone has been receiving a fair shot at claiming one.

Minority-owned businesses have been struggling to get equal access to the PPP loan. According to Forbes, only 12% of Black and Latino business owners who applied for PPP loans reported receiving what they requested. The article further states that nearly half of such business owners anticipate being forced to permanently close in the foreseeable future. Systemic discrimination may have played a strong role in who received this aid.

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PPP, PPP loans, PPP discrimination

In April, The Center For Responsible Lending found roughly 95% of black-owned businesses and 91% of Latino-owned businesses had a slim opportunity of receiving a PPP loan through a mainstream bank or credit union. According to the Wall Street Journal, plenty of the small businesses that received assistance were not the ones with the greatest needs. In fact, a business’s chance of obtaining the loan was influenced by the bank they were affiliated with. While many people have accounts with mainstream companies, many others do business with community banks that do not have advanced programs, which places account holders at a disadvantage.

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Furthermore, there is a historically weak relationship between minority business owners and several mainstream banks. This obstacle makes it substantially difficult for minorities to navigate the process of successfully securing a federal loan. This opportunity was the first time that many Black and Latino business owners had ever sought a bank loan, claims The New York Times. The article further states that many banks only considered applications from existing customers and even turned away people who established credit cards through fellow lenders. According to NPR, an additional problem for minority small business owners is that their businesses are more likely to be sole proprietorships, which is a person who owns an enterprise and is personally responsible for its debts. This highlights how minorities are more likely to use personal funds to finance their businesses which are generally run out of personal checking accounts.

PPP, PPP loans, PPP discrimination

A complete list of PPP loan recipients that was released by the United States Treasury in July. This index revealed that of the 14% of businesses that chose to identify their race in the loan application, White-owned businesses received 83% of the loans while Black-owned businesses received 1.9% of them. The Paycheck Protection Program is contributing to the wealth gap during a pandemic, which is unacceptable.

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